Asset To Equity Ratio (2024)

FAQs

What is a good asset to equity ratio? ›

What is a good asset-to-equity ratio? A value below 2 is an excellent asset-to-equity ratio. A high value may showcase that a company has assets by the issuance of debt than by equity.

Typically, a ratio of 0.5 or higher is considered good, but again, this can vary depending on the specific circ*mstances. If a company has a high equity to asset ratio, it's usually a good thing.

Generally, a lower ratio is better, as it implies that the company is in less debt and is less risky for lenders and investors. A debt-to-equity ratio of 0.5 or below is considered good.

Still, as a general rule of thumb, most companies aim for an equity ratio of around 50%. Companies with ratios ranging around 50% to 80% tend to be considered “conservative”, while those with ratios between 20% and 40% are considered “leveraged”.

As a general rule of thumb, your net worth should be at least 50% of your total assets. The higher the ratio, the better it is, as this means that the person has a strong financial position.

The maximum acceptable debt-to-equity ratio for more companies is between 1.5-2 or less. Large companies having a value higher than 2 of the debt-to-equity ratio is acceptable. 3. A debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations.

Generally, a good debt-to-equity ratio is anything lower than 1.0. A ratio of 2.0 or higher is usually considered risky. If a debt-to-equity ratio is negative, it means that the company has more liabilities than assets—this company would be considered extremely risky.

In general, many investors look for a company to have a debt ratio between 0.3 and 0.6. From a pure risk perspective, debt ratios of 0.4 or lower are considered better, while a debt ratio of 0.6 or higher makes it more difficult to borrow money.

Total liabilities divided by total assets or the debt/asset ratio shows the proportion of a company's assets which are financed through debt. If the ratio is less than 0.5, most of the company's assets are financed through equity. If the ratio is greater than 0.5, most of the company's assets are financed through debt.

Generally, investors prefer the debt-to-equity (D/E) ratio to be less than 1. A ratio of 2 or higher might be interpreted as carrying more risk. But it also depends on the industry. Big industrial energy and mining companies, for example, tend to carry more debt than businesses in other industries.

What is healthy equity ratio? ›

Many sources agree that a healthy equity ratio hovers around 50%. This indicates that the company is using a good amount of its equity to finance its business, but still has room to grow.

Generally, a good debt ratio is around 1 to 1.5. However, the ideal debt ratio will vary depending on the industry, as some industries use more debt financing than others. Capital-intensive industries like the financial and manufacturing industries often have higher ratios that can be greater than 2.

DefinitionThe Asset to Equity Ratio is the ratio of total assets divided by stockholders' equity. The asset/equity ratio indicates the relationship of the total assets of the firm to the part owned by shareholders (aka, owner's equity).

A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts.

Although a ratio result that is considered indicative of a "healthy" company varies by industry, generally speaking, a ratio result of less than 0.5 is considered good.

RATING THE ASSET QUALITY FACTOR

Asset quality in such institutions is of minimal supervisory concern. 2 A rating of 2 indicates satisfactory asset quality and credit administration practices. The level and severity of classifications and other weaknesses warrant a limited level of supervisory attention.